Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Royal Dutch Shell PLC (NYSE:RDS-B)
Q1 2019 Earnings Call
May. 02, 2019, 9:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Jessica Uhl -- Chief Financial Officer

Thank you. Ladies and gentlemen, good afternoon and welcome to Shell's First Quarter 2019 Results Call. Before we start, let me pause on the disclaimer statement.

Shell delivered another strong set of results in the first quarter of 2019. Building on the successes of 2018, in Q1 2019 we generated cash flow from operations excluding working capital movements of $12.1 billion and CCS earnings of $5.3 billion . These results show the combined strength of our strategy, portfolio, and operational performance. We have reshaped Shell to deliver higher returns across our Upstream, Integrated Gas and Downstream businesses. Today, I will present our Q1 results and then talk about portfolio highlights, before providing more insight into our earnings and cash flow, including the impact of the new IFRS 16 accounting standard. As I go through the results, please keep in mind, they are presented on a post-IFRS 16 basis.

For Shell to deliver a world-class investment case, we need to generate leading, growing and resilient cash flows and returns, and be disciplined with our cash allocation. In the first quarter, we did just that. Cash flow from operations, excluding working capital movements, were $12.1 billion , once again the highest in our sector. This was at an average Brent price of $63 per barrel. Our organic free cash flow for the quarter was $3.4 billion . This includes a working capital impact of some $3.5 billion .

CCS earnings, excluding identified items, amounted to $5.3 billion , and ROACE reached 8.4%. We are continuing to demonstrate progress toward ROACE of 10% by the end of 2020, even with the headwinds associated with IFRS 16. For Q1 2019, our gearing is 26.5% post-IFRS 16, or 21.9% on an IAS 17 basis, in line with the expected change. I will talk through this further later in the presentation.

Our capital investment in the quarter was $6.7 billion . Our share buyback program is progressing with some $6.75 billion in shares purchased in the last seven months. And the next tranche of up to $2.75 billion begins today. The share buyback program is executed under irrevocable contracts of approximately three months with a bank. The contracts allow for some flexibility with respect to the total value of shares purchased and the time period over which they are purchased, in order to achieve the best commercial terms. Once the contract has commenced, we do not have the ability to alter the phasing or amount of shares purchased. We continue to believe in our ability to complete $25 billion in share buybacks by the end of 2020, subject to further progress on debt reduction and oil price conditions.

In summary, a good quarter, with very competitive performance from our Upstream, Integrated Gas and Downstream businesses. This competitive performance can be seen when we look at our cash flow generation and returns on a four quarter rolling basis. To deliver on our world-class investment case ambition, we have reshaped Shell. Our leading cash generation and returns position reflects the strategic and portfolio choices we have made. And our focus on operational excellence, integration and our brand has made the most of these choices.

We are committed to maintaining our leading position in each of these metrics, to continue delivering competitive returns and cash flow from operations. And, while it's a priority for us to deliver our results, how we run our business is also key to our strategy. To sustainably deliver the world-class investment case, Shell has to be known as a company that performs and behaves in the right way to achieve its strategic ambitions.

Maintaining a strong societal licence to operate is a key pillar of our strategy. For us to do this, we need to demonstrate commitment to three core elements. Firstly, no harm. No harm to people and no harm to the environment. The second element is to have good products. We need to make and sell products that our customers want and need, and we must be good product stewards. The third, and final, element, is to contribute to society in order to be a valued part of society. This means supplying energy, providing employments, bringing investment and prosperity with our projects, and more.

How we conduct our business needs to reflect our values and principles, with Shell seeking to contribute positively to key issues, such as transparency, ethics and compliance, worker welfare, and diversity and inclusion, among others. As an example, we recently issued a report that provides transparency on climate-related positions of trade associations and the basis for our participation in these associations. This is one of the steps we are taking to increase transparency and ensure alignment with our positions on key matters. We believe by demonstrating commitment to these core elements, no harm, good products, and being a trusted company, we build and maintain trust, underpinning a strong societal licence to operate.

Let us now go through some of our portfolio highlights. In February, we announced the start of production at the Lula North deep-water field in Brazil. Production from Lula North is processed by the P-67 floating production and storage offloading vessel, and this is in addition to the P-69 FPSO, which started up in the fourth quarter of 2018. Both facilities are ramping up toward peak production, and we expect another FPSO to come on stream in 2019. This reinforces our position as a major producer of oil and gas in Brazil, with total equity production this quarter of some 375,000 barrels of oil equivalent per day -- the largest in the sector behind Petrobras.

Now, moving to the Gulf of Mexico, another heartland for our Deep water business. We continue to make investments in both exploration and new projects to sustain this business for decades to come. Supporting this future growth, Shell announced a significant discovery at the Blacktip prospect in the Deep water US Gulf of Mexico. The Blacktip exploration well has encountered more than 400 feet, or 122 meters, of net oil pay. Evaluation is ongoing to further delineate the discovery and define development options. Shell also announced the divestment of the Caesar Tonga asset for a total consideration of $965 million. This transaction reflects continued portfolio optimization, focusing on assets where we see the most value in the longer term.

We have also announced the divestment of a number of other assets, for example, our refinery in Saudi Arabia, and the interest in the Greater Sunrise fields. The total of these announced divestments to date amounts to some $2 billion . Another project that reached a key milestone is Prelude. In the fourth quarter of 2018, we announced that we opened wells to supply gas to this facility. We have produced the first condensate cargo, and we expect to ship our first cargo of LNG in Q2 this year.

As you can see, the Upstream and Integrated Gas businesses achieved important milestones in the first quarter. The same holds true for Downstream. In our retail business, for example, we made important progress on our strategy, building on our position in existing markets, and increasing our presence in five growth markets; China, India, Mexico, Indonesia, and Russia. Progress is gathering pace and we are pleased to report that some 250 sites were opened in these growth markets across the last two quarters. But to achieve our Downstream growth ambitions, we also need to enhance our existing market positions, and China is a great example of this. We have seen growing demand for our premium fuel, V-Power, which is now being offered at over 900 service stations in China, and we expect further demand for these types of products, allowing us to achieve greater margins.

Another example of Shell offering new solutions to our customers is our nature-based solutions offering, where we are making it possible for our customers to drive carbon-neutral. Starting in April, Shell customers in the Netherlands can use nature-based carbon credits to compensate for the carbon associated with the use of fuels purchased from us. This is done at no extra cost for customers who choose Shell V-Power, while those who fill up with regular Shell fuels can participate for an additional $0.01 per liter. We plan to make similar opportunities available to customers in other countries, starting with the UK later this year.

We are further enhancing the customer experience with additional products and services. With the Shell App, we can provide customers with multiple flexible solutions to meet their needs as part of our loyalty proposition. In the UK, for example, with the recent rebranding of First Utility to Shell Energy, we can now use our Shell Go+ loyalty program, to provide Shell Energy customers an integrated set of offers at the service station, and in their homes.

To further meet the needs of customers, while enabling a lower carbon future, Shell Energy will now supply all of its household customers with electricity that comes from 100% renewable sources like wind, solar and biomass. A recent survey indicated that 60% of British households want to power their homes with renewable electricity, so this is about knowing our customers and providing low carbon solutions, today.

So, as you can see, we are building on the solid foundations of our retail business to further innovate and grow. We are taking these steps to build a competitive and sustainable business with attractive and resilient returns, and with opportunities to scale-up once proven. So, in Q1, we saw new Upstream and Integrated Gas projects starting up, we saw Downstream reaching new customers, and existing customers in new ways, and we saw New Energies growing. We continue to invest in our portfolio to drive our strategy, market leadership and competitive returns. This is also reflected in how we are further high-grading our refining portfolio.

In April, Shell announced the sale of its 50% interest in the SASREF refining joint venture to its partner, Saudi Aramco, for some $630 million, and we are expecting the transaction to complete later this year, subject to customary closing conditions. This sale is aligned with our strategy of consolidating our footprint to focus on increasingly complex sites, which offer greater flexibility, proximity to customers, and integration with Shell's trading network.

The focus on high-grading our portfolio has improved our competitive position. And by continually optimizing the core assets, we will further improve the competitiveness of these assets. In Bukom, for example, we have installed two crude oil tanks at the refinery. Once the final permits are approved, this will increase the site's total storage by around 1.3 million barrels of crude oil. This strengthens Bukom's flexibility and enables supply and distribution optimization, to secure the best value crude for the refinery. Again, another example of how Shell ensures it is optimizing its operations, unlocking the best value from the integrated value chain.

This also provides further opportunity as we implement the new marine fuel specification, aligned with the International Maritime Organization, IMO, 2020 targets. And, this project did not follow conventional construction practices, but instead used novel automated welding technology to help accelerate construction, another example of how we are doing more for less, and using technology to our advantage.

And finally, we are using technology to further help us improve the safety of our people, and support our continued drive for operating cost efficiencies. These new tanks feature an automated cleaning system that will help improve the long-term integrity of the tanks and, importantly, reduces the need for employees to manually perform this task going forward. This is safer and costs less.

Enhancing our refinery storage capacity, and optimizing our blending capabilities is a key part of how we unlock value from our integrated Refining and Trading and Supply businesses.

Last year, we installed two new crude oil storage tanks with mixing capabilities at our Deer Park refinery on the US Gulf Coast. And we are also investing in additional storage capacity at our Scotford refinery in Canada and Geismar Chemical plant in Louisiana. Both of these projects will use best practices and learnings from Bukom. In summary, these are great examples of how we have looked to optimize assets at every step through construction to operations.

Now, we have seen some of the elements Shell has delivered across its portfolio, let me turn to our financials. On a post-IFRS 16 basis, our Q1 2019 CCS earnings, excluding identified items, amounted to $5.3 billion , which is 2% lower than in Q1 2018. In our Integrated Gas business, total production was 12% lower compared with the first quarter 2018, mainly due to divestments and the transfer of the Salym asset into the Upstream segment.

LNG liquefaction volumes decreased by 2% compared with the first quarter 2018, mainly driven by higher maintenance activities and divestments, partly offset by increased feedgas availability. Integrated Gas earnings, excluding identified items, were $2.6 billion , or 5% higher than in the same quarter last year, largely driven by higher realized LNG and gas prices and increased contributions from LNG portfolio optimization, partly offset by the impact of lower production and LNG sales volumes.

Earnings excluding identified items in Upstream were approximately $1.7 billion , or some $170 million higher than in Q1 2018. This was driven by higher volumes, mainly from the US Gulf of Mexico and shales operations, and reduced operating expenses. This more than offsets the impact of higher tax charges and lower realized oil prices. First quarter Upstream production increased by 1%, compared with the same quarter a year ago, mainly due to higher production from our North American assets, and the transfer of the Salym asset from the Integrated Gas segment. This was partly offset by the impact of divestments, field decline and lower production in the NAM joint venture. Excluding these portfolio impacts, production was up 2% over the same period.

In Downstream, CCS earnings excluding identified items in Q1 2019 were $1.8 billion . Downstream benefited from higher contributions from crude oil and oil products trading, partly offset by lower refining, intermediates and base chemicals margins.

In Corporate, we have seen the additional impact of IFRS 16 with the interest recognition residing in the segment. This is consistent with the expected impact as a result of IFRS 16, as previously communicated.

Now let us review the cash flow. Our Q1 2019 cash flow from operations, excluding working capital movements, amounted to $12.1 billion , which is $1.8 billion higher than in Q1 2018. This is against a backdrop of lower chemicals and refining margins and decreased realized oil prices, and also includes the IFRS 16 impact on cash flow, as previously communicated in our call, of around $950 million.

In our Integrated Gas business, cash flow from operations in Q1 2019 was $4.2 billion , and includes positive working capital movements in the quarter. In our Upstream business, our cash flow from operations was $1.7 billion higher, and includes a help from working capital, in addition to the increased volumes in the quarter from the US Gulf of Mexico which are, as I have said before, the higher cash margin barrels. The Upstream cash flow from operations in Q1 2019 also include a cash tax payment of approximately $500 million relating to the agreement signed between Shell and the Government of Oman in Q2 2018. These payments will offset future tax payments from 2020 onwards.

In our Downstream business, our cash flow from operations is $3.7 billion lower in Q1 2019 when compared to Q1 2018, largely due to the impact in working capital resulting from the higher inventory price and volume movements. In Q4 2018, we saw a help to cash flow from working capital movements largely linked to the fall in oil prices and reduced inventory levels. At that time, we flagged our expectation that this would partially reverse should prices increase, and in Q1 2019 we observed the closing Brent price move up versus last quarter. This change in price, in addition to our usual seasonal inventory movements, has contributed to an increase in working capital of some $3.5 billion from Q4 2018.

So, now that we have seen the business drivers, it is worth briefly touching upon how this all rolls up for Shell on the summary financials at both a pre and post-IFRS 16 level. I would first like to emphasize, implementing IFRS 16 does not change Shell's strategy or financial framework. We still have the same financial discipline, the same focus on results, and we are well on our way to become a world-class investment case. Cash flow from operations, excluding working capital movements, was $12.1 billion , including an IFRS 16 impact of $800 million. Our free cash flow for the quarter of $4 billion , includes an IFRS 16 impact of approximately $1.1 billion . This is the result of lease payments being reported under cash flow from financing and no longer under cash flow from operations and investing, therefore free cash flow. This was as expected, and was communicated in our IFRS 16 call.

Capital investment in the quarter was $6.7 billion . This includes a $700 million impact due to IFRS 16, as it now includes the capitalization of operating leases in the period. As highlighted in the IFRS 16 call, in order to improve the transparency of our capital expenditure and the cash implications of our financial framework, we are introducing a new metric -- cash capital expenditure, as from Q1 2019. In Q1 2019, our cash capital expenditure was $5.6 billion .

And finally, our gearing increased, as mentioned earlier, from 21.9% to 26.5%, in line with our expected increase as a result of the accounting change. We now recognize operating lease liabilities on the balance sheet, resulting in higher debt and capital employed, and therefore increasing the quoted gearing percentage. And while our gearing might fluctuate from quarter to quarter, the underlying trend on gearing is moving in the right direction and we are progressing toward our 20% target on a pre-IFRS 16 basis, or 25% on a post-IFRS 16 basis.

Let me summarize. Q1 was another good quarter for Shell, across all of our businesses. Our delivery reflects the strength of our strategy, portfolio, and operational performance. Capital and operating expense discipline remains key to achieving competitive returns. We continue to focus on consistent delivery and performance in the short term and we are confident in meeting our 2020 outlook. We are also building our business to generate profitable and resilient cash flows into the 2020s. And, all of this is built with continued disciplined management of our financial framework. I look forward to providing more details on our strategy and post-2020 outlook at our Management Day event in June.

With that, let's go for your questions please. Please could we have just one or two each, so everyone has the opportunity to ask a question.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) We will now take our first question from Oswald Clint of Bernstein. Please go ahead. Your line is open.

Oswald Clint -- Bernstein -- Analyst

Thank you very much, Jessica. Yeah, that's -- my first question was just like cost trends. If I look at your underlying production and manufacturing costs, I think there are -- they've reduced $0.5 billion year-over-year. Obviously a lot of moving parts. But it looks like point three of that in the Upstream a point, two in the downstream and I just want to check that's right and if you could specifically talk about what's happening in the Upstream to kind of take out that much cost year-over-year, is it just mix effect from divestments or is there some actual progress with cost reduction there.

And then secondly -- my second question was just stepping back and thinking about this growing premium, I guess for assets or for M&A, especially within the kind of unconventional space inside North America and also aligned with your previous comments that you would like to deepen your position there, could you perhaps just put those two of those statements together and talk about your appetite today for continued bolt-on deals in North American unconventionals, and I guess perhaps just a possible just (inaudible) that answer with, if there were deals in the future, what sort of ballpark magnitude are we talking about? Are we talking about $5 billion or $10 billion or $50 billion type deals, please? Thank you.

Jessica Uhl -- Chief Financial Officer

Great. Thank you, Oswald for the two questions. Starting off on the cost question. A couple of things are at play right now. First one is, IFRS 16 had a positive effect on our operational expense of some $400 million in the quarter and in the slides, we've provided -- on Slide 23, you'll see a reconciliation of all of the IFRS 16 impacts and you can have some further detail there.

There's also a positive effect of FX as well. But I would also like to emphasize that our focus on operational expense efficiencies and simplification of the Company is ongoing and we have initiatives in all of our businesses that are impacting our refining business or impacting our Upstream business. So we continue to have significant ambition to increase availability of our assets, which certainly affects unit cost. But simply to run our assets that much more efficiently. So there's ongoing focus throughout the Company in our assets, in the corporate office to simplify and reduce costs. But there's a number of things in play for the quarter that's contributing to that reduction year-on-year.

In terms of the shales business and appetite for M&A, I'll start off by just saying we're very pleased with the performance of our shales business and the portfolio that we have today. We're generating some 370,000 barrels a day from that business. That's a 13% increase year-on-year. So we've been growing that business steadily. If you look at just the Permian position that we have and we think we've got some of the best acreage in the Permian currently. Our production is up some 70-plus percent over the year. And we see significant growth opportunity with our existing position in the Permian, but also in Canada and in Argentina as well. And last year, we took some investment decisions to support growth across all of those assets.

So we have growth capacity in our existing position. And in that sense, we're not desperate. We don't -- we don't need to find new shale exposure for that business, nor for supporting Shell's wider cash flow growth going into the 2020s. That being said, we've been clear that we like the business. We've transformed the way we run that business and we now consider ourselves to be one of the top operators certainly in the Permian and we've got benchmark data to prove that from an operating cost perspective and from a well cost perspective. So we have confidence in our capability in the space and our ability to create value. So that gives us more interest and appetite to get further exposure in the shales business.

But of course anything that we do will need to be value accretive. So we'll be very strict on the criteria that would make it across the finish line in terms of us actually taking on an acquisition. In terms of scale and scope, very difficult to say, but we're clear on our financial framework and our commitment to the financial framework, and importantly that our free cash flow targets at the end of 2020 are gearing targets. So whatever we do, needs to fit within our -- within our financial framework, which we believe is the right thing for the Company and for shareholders ultimately. Thank you.

Oswald Clint -- Bernstein -- Analyst

Thank you. Thank you.

Operator

We will now take our next question from Lydia Rainforth of Barclays. Please go ahead. Your line is open.

Lydia Rainforth -- Barclays -- Analyst

Thank you and good afternoon. Two questions, if I could. The first one just around the outlook for the renewables business and I think in some of the big comments made by (inaudible) wanting to be the world's largest power company. I just think you could clarify what exactly you understand by that of what you think that statement means. And then secondly, could you just talk around the Integrated Gas business, a little bit more of the -- it was a good result in business and just in the context of what (inaudible) example of some of the optimization opportunities that still exist? Thank you.

Jessica Uhl -- Chief Financial Officer

Great. Thank you, Lydia. So in terms of our power ambition, we are -- we believe the energy system will transform and will shift to power increasingly over the coming decades and we aspire to lead and thrive in that energy transition and are positioning ourselves for that future. We're not pursuing scale for scale sake much of the conversation we've been having over the last couple of years for the Upstream business that its value over volume. We have absolutely the same philosophy and strategy with our renewables and our new energies business and that is the foundation for all of our activities.

We have beliefs in terms of how we can create value and how we can competitively differentiate through an integrated offering. I spoke about a bit of that in the presentation. That's what's underpinning our belief, but we're going to prove out and we're going to prove that we can make competitive and attractive returns before scaling up. And if we do that, we think we have the opportunity to be certainly leading in the sector, but it's going to be driven by value considerations above all else.

In terms of the IG results, the business continues to perform very strongly. I know I've hedged a bit on some of the quarters saying this isn't necessarily the sustainable levels. And then each quarter we keep generating, I believe, very impressive cash from the business. I think the fundamentals of the business are strong and that's what you're seeing coming through there.

If you looked at the results that we achieved in the quarter, it's essentially based on our structural position that we have with our contracts. There is some trading optimization that happens that's part and parcel of our business, but it really is trading around the asset positions that we have versus any kind of kind of speculative positions. It's really driven by the strength of the portfolio the contractual natures that we have. I'll point out that we have significant oil exposure in our contracts. Most of our contracts are long term. The majority of those are oil linked. A portion of those is linked to J.K. K minus 3 (ph) So you're not seeing the full impact of the price reduction coming through.

So we have that benefit in the quarter. But even taking that into consideration, just see the underlying performance of that business, the increased supply we've been able to achieve and utilization we've been able to achieve, so operational excellence has also played a part. It continues to make this pretty sustained level of high cash. And you know hopefully achieving a new normal with that business. Thank you.

Lydia Rainforth -- Barclays -- Analyst

Jessica, thanks very much.

Operator

We will now take our next question from Thomas Adolff of Credit Suisse. Please go ahead.

Thomas Adolff -- Credit Suisse -- Analyst

Good afternoon, Jessica. Two questions for me as well, please. Firstly, these results provide confidence in meeting your 2020 target, you say in the release. Once you adjust for different macros, which you say operationally things are progressing better than expected or largely in line with your expectations your budget? And secondly, in regards to your LNG portfolio, how do you feel about your pre-FID hopper? You've recently exited Baltic LNG and you still don't have an agreement on the gas supply for Sakhalin Train 3, while in Indonesia Abadi is still many, many years away before you can consider finding. This really leaves you with Nigeria, which is a great project, but I'm not so sure about Lake Charles. Some of your peers have deeper options or yet have fewer contract expiries over the medium term. Thank you.

Jessica Uhl -- Chief Financial Officer

Thank you, Thomas. Indeed we have confidence in our ability to achieve the ambitions that we set for 2020 and really pleased with how the Company has progressed over the last couple of years and we said a couple of years ago we're going to reshape Shell. I think a huge portion of that reshape -- reshaping has occurred and I think focusing on the strategic choices we've made, the portfolio choices we've made are really underpinning the high level of cash that you're seeing coming through particularly in our Upstream and IG business.

Repositioning our Upstream business to be more oriented toward the Gulf of Mexico and Brazil, the acquisition of BG and the bringing together of the two LNG portfolios and the LNG capability and the leadership, Steve Hill in our running our LNG trading business. All of those things have come into play in terms of generating the levels of cash that you've seen consistently coming from the Company over the last couple of years and continued discipline on the capital side and continued discipline on the operational expense side.

All of that is contributing to the results that you're seeing. I wouldn't say that these are better than expected, I'd say they're in line and I believe there's more to come and there's certainly more to come from a project's perspective. We still have Prelude to come up on stream and Appomattox. Those are significant assets for us and we should have some $3 billion to $5 billion of an incremental CFFO coming through over the next 12 to 18 months as we bring those projects and other projects on stream. So I'd say a very good quarter, but in line with expectations.

In terms of the LNG hopper, overall we're pleased with our portfolio. Of course we took the LNG Canada decision last year. So that's part of the next generation of equity supply for us. We do have a number of other projects as you said in the hopper. These things can feel relatively hot or cold depending on the moment in time. We did make important progress on Lake Charles in 2018. We've got an LNG as you said. We've got Indonesia, Tanzania, further opportunities in Australia as well. So there's a number of things to keep us busy. So I'm confident in terms of our ability to continue to grow that business and grow the portfolio in line with market as we've done in the past. Thank you.

Thomas Adolff -- Credit Suisse -- Analyst

Thank you.

Operator

We will now take our next question from Christyan Malek of JPMorgan. Please go ahead.

Christyan Malek -- JPMorgan -- Analyst

Hi.Good afternoon, Jessica and congratulations on another strong quarter. Two questions, if I may. First, just going back to M&A, I mean there's always plenty, you can deploy additional capital toward whether there would be more shale barrels or Brazil transfer of rights. With the backdrop of M&A in the US, I want to ask from a portfolio perspective, why M&A is even on your radar and particularly in shale when you've got a portfolio that's inarguably the same cash flows over the medium term? Deepwater has gained strength to strength. Why are we even having this conversation around M&A? You've done BG. Shouldn't that be it in terms of consolidating going forward?

And secondly over the past 12 months, has anything changed within the IG business or the structure or the way you manage trading and optimize volumes and it's part of a broader question, which is what are the lessons learned from last year's performance that drove some of that volatility in quarterly cash flow?

Jessica Uhl -- Chief Financial Officer

Great. Thank you, Christyan. I think it's entirely a fair point that you're making on with respect to M&A in North American. That's why I framed my response to just keep in mind the strength of the business that we have today, the strength of the portfolio that we have today and the level of cash generation that we have currently as well as what we'll be delivering over the coming years.

And against that context, we don't need to do M&A and I think that is important to keep in mind. That being said, we are always every day of the year, someone in the Company is probably taking a look at an opportunity because that's simply the business that we're in and we need to look at how do we further refine shape our portfolio to make sure we've got the most competitive portfolio.

And against that backdrop, should an opportunity come forward that looks like it presents a better opportunity than our current suite of assets is in line with our strategy or where we think we can somehow extract incremental value or differentiated value from the assets, then of course we're going to take a look at it and it's really in that context. I would also add, as I mentioned as well, the increased confidence we have in our capability in this business and believe there is more running room for us. And again we think we can potentially create differentiated value in the space based on what we're seeing with our -- particularly with our Permian operations.

For IG, it's an interesting question. Structural change. I can't point to any structural change specifically in terms of our contract structures or the way we're running the business. It's more or less kind of the same organizational and business model, if you will, that we've had in place over the last couple of years and with Steve running it. I think perhaps it's the continued optimization and perhaps the virtuous circle that we're able to achieve given the nature of our portfolio and the nature of the capabilities that we have and our ability to consistently optimize and extract more value per tonne sold continues to be shown in our results.

And so, I can't point Christyan to anything that's fundamentally different or necessarily what we've learned. I mean I think on the margining side, hopefully we're providing the right level of transparency that's still flowing through our numbers, but somehow it's become less prevalent. But in terms of how we're running the business and structuring the business, the fundamentals are the same. And I think just the strength of that business and the strength of the portfolio that we have is essentially what's coming through. Thank you.

Christyan Malek -- JPMorgan -- Analyst

Thank you.

Operator

We will take our next question from Biraj Borkhataria of RBC. Please go ahead.

Biraj Borkhataria -- RBC -- Analyst

Hi. Thanks for taking my questions. I've got one follow-up on Thomas's question. Regarding your 2020 free cash flow target, as you mentioned on the whole, you are on track. Did you talk about any small areas or any particular areas which are currently not performing to your expectations or according to that plan. And then second question is on your Permian acreage. Does the potential take out of Anadarko and change of control that mean anything for your plans. I know you have the JV with them, so does that mean you have to slowdown the activity at all or any impact there? Thank you.

Jessica Uhl -- Chief Financial Officer

Great. Thank you, Biraj. So in terms of our 20 20 outlook and I think throughout the presentation and in some of my responses, I've already expressed confidence. And again what gives me that confidence hopefully comes through in the materials we've provided today and certainly in the rolling four quarter cash flow from operations chart, excluding working capital where you can see just the consistent growth we've been able to achieve over the last couple of years.

We said we would do that. We said we would bring more projects on stream. We said we would take costs out of the system. We said we would be more capital efficient. All of those things have happened and they're happening consistently. So we certainly have confidence in our performance and hopefully the market will have confidence in our performance and it's based on that knowledge. And looking forward and seeing what else is on the horizon in terms of what can drive further cash generation. I've spoken a bit about that as well. We've got a couple of big projects, Prelude and Appomattox, but also our downstream business, which I mentioned, which is humming along very well.

You see the marketing results for the quarter some $1 billion in earnings, that's in line what it was in the fourth quarter. And I'd highlight these are two totally different price environments and I think that's a good way of thinking about the strength of our marketing business to generate those earnings in two very different price environments. So all of that, the strength of our delivery today gives us confidence going forward.

Now of course, there's the macro environment. If the price changes dramatically that would obviously be potentially disruptive in terms of our outlook. And we have to stay focused on delivery. There can be no kind of getting too comfortable in the organization around our delivery whether it be bringing our projects on stream, to driving cost out, to ensuring the highest availability of our assets. We need to maintain what we're currently doing. And as I mentioned earlier, potentially even extend what we're doing further to make our cash generation even more robust and resilient or even grow it further. So I think what we have under our control, I have confidence in, it's always -- it's the macro that may interrupt things.

In terms of Permian and the change in -- potential change in ownership of the Anadarko position, at the moment, we're not seeing anything. And I can't -- I don't see a likely negative impact. I mean there could be some minor disruption as people change things -- change hands, but these things happen quite frequently in the US shales business, it's a kind of matter of course and it's in everyone's interests for the most part to work well together to make -- maximize value for all companies involved. That's what we've been doing with Anadarko and we'll do it with whoever owns those assets going forward. Thank you.

Biraj Borkhataria -- RBC -- Analyst

Thanks for the color.

Operator

We will now take our next question from Roger Read of Wells Fargo. Please go ahead,

Roger Read -- Wells Fargo -- Analyst

Hello. Good morning or good afternoon, I guess in your case, sorry. I would like to follow up if possible on what's going on in the chemicals segment. You're at least the second company to reference some issues there on the margin front. Just kind of curious what your expectations are over the next several quarters at a minimum and maybe into 2020 in terms of what's going on in supply and demand there. And then the other question I had was on the balance sheet side. I know the change is due to the IFRS regulations, but I was curious given that the Company is generating better cash flow, you've got your other goals set out on the share repo side and a pretty healthy cash balance, what you would want to do with debt here? And if that's a better question for June, that's fine by me.

Jessica Uhl -- Chief Financial Officer

In terms of the chemicals segment, clearly the macro environment affected our results. As is true across the sector, margins across the board were much lower than they were a year ago and that's a combination of supply and demand factors. So new supply coming on stream and softer demand particularly in Asia coming through. And that coming through in our results. I still think relatively speaking, we did OK, but was against a very, very difficult backdrop.

Very difficult for me to predict how these things will move. These things don't necessarily correct themselves quarter-on-quarter, but for us the main point around our chemicals business and why we continue to invest in the business is, we think that long term fundamentals remain very strong with demand expected to exceed GDP for the coming decade. It's a huge -- huge growth is on the horizon and we really play to the long term and not so much quarter-on-quarter. We expect these kinds of dynamics to happen as we're currently seeing in this quarter that could continue for a couple of quarters. But that's not going to shift our current view that the long-term prospects around the industry are very attractive to us. And we think we can generate attractive returns through the cycle.

On the balance sheet side, we're clear in terms of our current ambition through 2020, we believe in having a robust and resilient balance sheet to weather volatility and on through time create some flexibility for us. And we would -- we have been clear that we would like to get back to the balance sheet and gearing levels that were pre-BG and that's at and around the 20% level or below. And we've been working toward 20% and making very good progress over the last couple of years. That remains our ambition through the end of 2020.

In terms of the overall financial framework, we'll go into greater detail in terms of how we're thinking about our balance sheet and allocation of cash in greater detail as we look into the 2020s at our Management Day presentation in June. Thank you.

Roger Read -- Wells Fargo -- Analyst

Thank you.

Operator

We will now take our next question from Jason Gammel of Jefferies. Please go ahead. Your line is open.

Jason Gammel -- Jefferies -- Analyst

Thanks very much. I wanted to ask two on the Downstream, if I could, please. One short term and one more strategic. First of all, the Pernis refinery and Moerdijk chemical facility had some industrial action. I just wonder if you could update us on the status of that and whether it's going to have any effect on 2Q volumes. And then second more on the strategic side, you made reference to wanting to really drive the footprint into trading hubs and integrated facilities with chemicals in the Downstream business. Do you think you're essentially now at that point or should we expect to see further divestitures in the Downstream business?

Jessica Uhl -- Chief Financial Officer

Thank you, Jason. With respect to Pernis and Moerdijk, the industrial actions have been resolved (inaudible). So that's no longer an issue for those assets and I would not anticipate any impact on 2Q volumes associated with any of those activities. So hopefully that's fairly straightforward.

In terms of concentration around the trading hubs, indeed there is -- integration takes its form in different ways. Sometimes it's physical integration, where we have our chemicals assets and our refining assets and perhaps our storage assets all collocated and that creating value through integration from that perspective. And then there's integration with our trading activities as well, which also allows us to maximize value in terms of what goes into our refineries and chemical plants and what comes out and how we bring those to market. And that's what -- we're pursuing both types of integration in terms of creating distinct value in the value chains that we participate in.

In terms of our portfolio for our Downstream assets and refining, I'd say we're always managing our tail and always managing to ensure that our portfolio is optimized whether it's our Upstream or our Downstream business. So I wouldn't rule out other things happening in our Downstream business, but I wouldn't say that we're -- I wouldn't want to signal anything specific at this point in time. But it's part of our normal portfolio management that we do. Thank you.

Jason Gammel -- Jefferies -- Analyst

Thanks.

Operator

We will now take our next question from Jason Kenney of Santander. Please go ahead. Your line is open.

Jason Kenney -- Santander -- Analyst

Hi, Jessica. Thanks for taking the question. Just going to build on some of the earlier questions around Integrated Gas, if I can. I think you had five quarters now over $2.5 billion a quarter of earnings. So I'm just wondering if this is the new normal and whether I should be looking at say around $10 billion earnings for IG this year. And that's assuming a liquefaction in an 8 million to 9 million tonne per quarter or 36 million tonne per annum kind of business. And then, looking ahead, if I were to think of expansion at the -- toward 45 million tonnes per annum over the next couple of years, do you think earnings moves proportionally up on that basis or are you still expecting improved margins over the next couple of years, so that you take the volume increase and you get a better margin?

And then my second question, just going on the gearing. I think you had mentioned the 20% line of sight on the pre-IFRS 16 basis. Should I be thinking of -- that is 25% on a post-IFRS basis? Is that the kind of clarification we need? Thanks.

Jessica Uhl -- Chief Financial Officer

Thank you, Jason. And maybe last question first, yes. So 20% is equivalent to 25%. And I mentioned that in the speech as well. And it's in some of the slide materials where we provide a bit more detail. But that's the right way to talk about it. And again in Management Day, we'll walk through all of the implications of IFRS 16 because it touches so many of our metrics. But for this year, it's -- we're providing the information both on an IAS 17 basis and IFRS 16 basis to help people navigate between those two different worlds. In substance we're not changing anything. So it's just the metrics need to change because the accounting has changed.

On IG, it's a fair challenge. And perhaps in some ways, we've been a bit sheepish ourselves. We've done some divestments over the last year. We've seen some unique weather events in the last year. And those elements felt less repeatable and that's part of some of the hedging, no pun intended, that I provided in the prior quarter calls around our results and not simply just to think this is the new normal. I think it is getting a little bit challenging to keep repeating that. But there's a certain amount of the -- obviously the price environment, the market dynamics have a meaningful impact on our results. We've continued to manage those well. But I certainly wouldn't -- we don't give guidance in terms of full year numbers on earnings and I wouldn't want to do that. But I would say that, we should have confidence certainly in the underlying performance of the business. I'd like to think we're getting to the new normal, but again we are subject to the marketplace. And I wouldn't want to be too strong in terms of signaling this level going forward.

In terms of contemplating growth and how that plays out, indeed we do want to grow this business. We want to grow in step with the growth of the business in terms of kind of we're roughly around 20% of the sector today. That role that we play or that position that we have allows us to do, as I mentioned, a lot of optimization and create differentiated value. We'll look to continue and extend that going forward. But in terms of the nature of what those return profiles look like, will they be less or more, I think I would look to kind of how we're currently producing and currently generating cash as a good baseline, but our ambition is never stopping as I indicated earlier. We have ongoing cost initiatives, simplification initiatives, digitization initiatives across the Company where frankly we're trying to improve the margins in all of our businesses. So in that sense, we have certainly more ambition, but that's -- that needs to be developed and brought to the bottom line before we fully bake it in. Thank you.

Jason Kenney -- Santander -- Analyst

Thanks.

Operator

We will now take our question from Martin Rats of Morgan Stanley. Please go ahead. Your line is open.

Martijn Rats -- Morgan Stanley -- Analyst

Yeah. Hi, Jessica. Thanks for taking my question. A couple of weeks ago, I read the Energy Transition Report that you published. And I thought it was very interesting. And there was one, particularly one thing that I spotted. In that report, you published a cost curve and there are two interesting things about that cost curve. If you look really just all the way toward the left, the first block that you plot there is North America light tight oil. In fact you plot North America light tight oil in that cost curve left of OPEC.

And at the same time, if you look at deepwater, it's all the way to the right in that cost curve. And in that block, there are almost no deepwater project with breakevens lower than $80 a barrel. And actually to an extent, sort of this cost curve surprised me a little bit. It's -- do you -- is this truly how you see it i.e. do you truly see North America light tight oil now on average being more cost competitive than OPEC? And also, do you -- is it really true that in your estimation very few deepwater projects on a full cycle basis have breakevens less than $80 a barrel? And also, if this truly is, how you see it, then you have to invest more in shale and less in deepwater, right?

Jessica Uhl -- Chief Financial Officer

Martijn, thank you for the question and thank you for reading the report. I think that came out about a year ago. So, unfortunately, I don't have that kind of level in the top of my mind in terms of which chart you're looking at. And we can come back to you with more detail, but I'll make a few comments on some of the points that you've raised. In terms of breakeven prices and the way that we're looking at our business, we're achieving breakeven prices in both our shales business and our deepwater business of below $40 a barrel. And so this is why we are interested in both of those businesses.

We find them both attractive. They have different characteristics. We bring different capabilities to bear. We find them complementary in a lot of ways. But both of those businesses for us, we think generate some of the most competitive barrels in the sector and that's what's driving our continued investment in the deepwater business, our focus on the shales business and potential future investment in the shales business, subject to the caveats that I gave earlier in the call. But Martijn, we can come back to a bit more specifically on that chart and make sure that we're all seeing and understanding things in the same way.

Martijn Rats -- Morgan Stanley -- Analyst

Yeah, thanks. I'd appreciate that. It's quite interesting.

Operator

We will now take our next question from Irene Himona of SocGen. Please go ahead. Your line is open.

Irene Himona -- SocGen -- Analyst

Thank you. Hello, Jessica. I had two questions, please. Firstly back to Integrated Gas and thinking about the time lags and the potential impact of the lower spot LNG prices we have seen so far this year. You both buy and sell material volumes in the spot market. Is it feasible you could continue to surprise positively on LNG earnings, helped by your improved optimization and perhaps despite the weaker pricing environment?

And my second question is on working capital. You have said before that you actively manage working capital. Now, we have seen some extreme movements in Shell's working capital, particularly in the last couple of quarters. Assuming no major price changes, is it possible to provide some indication of what your working capital might do over the full year 2019, please? Thank you.

Jessica Uhl -- Chief Financial Officer

Thank you, Irene. So in terms of the relationship of the LNG spot market to Integrated Gas' result, I think that the was essence of your question. Most of our business and our cash generation is related to our contracted portfolio. So we have spot activity as you said. We buy some on the spot market and we sell on the spot market. That's somewhere between 10%, 20%, depending on the moment in time. So it's -- the vast majority of what we're buying and selling is within contractual arrangements.

Now we can optimize within that contract structure and that's part of what our trading capability does in terms of how the molecules actually flow. And then can we create value simply from optimizing within that portfolio? But indeed, stepping in and out of the spot market to buy or sell also creates further opportunity for us to create value. We certainly do that and that does contribute to the performance that you see in the quarter and in prior quarters, but it's not the driving force behind the underlying cash generation of this business. It is an optimization lever that we're working with. And of course that is subject to the market conditions. And this is where it's -- it's difficult, if there's not a lot of volatility, if -- yeah, there's not a lot of demand in the spot market et cetera. Those market conditions that we don't have control over may make more or less opportunity be available from spot transactions. So I think there is a capacity to provide upside to our numbers as you indicated, but that's really difficult to fully bake in because it is subject to whatever is happening in -- from a market perspective.

In terms of working capital, we do actively manage it and the movements we've seen for the last two quarters have been largely price driven. So certainly in the fourth quarter and in the first quarter, the majority of the change was simply the change in price. That being said, there are also volume implications as well in both of those quarters, but the majority of it, certainly this quarter some two-thirds of it was simply price related. Working capital is important for us. It is a resource we use to make money. We -- in our trading business, we can use inventory as part of the positions we take and we require at least a 15% return on that resource. So we do -- we actively manage it and we actively make money off of it. That's part of how we manage it.

Difficult and not really possible for me to give you guidance because it is also a function -- well some of it's potentially competitively sensitive, but also -- again it's a function of the market and how the market is playing out. We'll make -- we'll have implications in terms of the amount of working capital we're willing to use to support growing the business. I've mentioned that with the flux in the market, in Downstream particularly with IMO and the shift in demand and the uncertainty that's going to create over the next couple of years could potentially be an opportunity for us from a working capital perspective, but we'll have to see how the market unfolds. Thank you.

Irene Himona -- SocGen -- Analyst

Thank you.

Operator

We will now take our next question from Jon Rigby of UBS. Please go ahead. Your line is open.

Jon Rigby -- UBS -- Analyst

Hi, Jessica. Thanks for taking the question. Two. One is that you did actually reference this, but I just wanted to go into a bit deeper. Is that what were a decent set of numbers at 4Q had one area that I was a little disappointed in was that your marketing business didn't seem to get a pickup from the fall in oil prices that we saw. But conversely, the marketing business was extraordinarily robust -- it seems to me in the first quarter with oil prices rising. If you look historically, it's been much more volatile. And I just wondered whether there's something going on whether through the process of portfolio management through the changes in the business that have been taking place or whatever that something has been happening within that marketing business that makes it more regularized even as prices are volatile first question.

Secondly is that -- you're not going to like this, but in the last four or five years, obviously you've not increased the dividend. And I understand the reasons why. I mean one would argue probably that the payout was too high back in '13 and '14 and you've effectively been growing the business into the dividend over the last three or four, five years or so post BG. But the problem with that is, that the signaling devices are useful that comes from the Board of Directors you can see underneath the hood so to speak of the business is that they can signal positive progress, which I think you're indicating, you're very comfortable with. They can see positive progress underlying. So I just wondered whether notwithstanding the fact that you obviously want to be cautious about long-term payout commitments whether you can see an argument starting to reflect some of that progress within the dividend over the sort of short to medium term? Thanks

Jessica Uhl -- Chief Financial Officer

Great. Thank you, Jon. So a good question on the marketing business. And what's driving the consistency of these earnings in very different price environments. There's a few things at play. I'd say the first is, we've really built up our capability in the organization in terms of how we manage pricing in all of our markets. So we've become increasingly sophisticated in how we manage pricing and pricing exposure, which I think has helped in driving better consistency and less volatility.

We've, of course, also diversified our product offerings. More V-Power, which is higher margin, non-fuel retail, an important piece and the product offerings that we're offering particularly in Europe, making an increasing contribution to our bottom line. And then, the diversity of our business around the world and the different geographies which have different dynamics that also lead to more consistent performance in the business. So I think all of those things are in play that are contributing to this outcome.

And again part of the reason why we're focusing on our marketing business and our marketing capability is our confidence in the delivery we've been able to achieve and the consistency we're able to achieve and we think our strategy in the business model and the levers we're pulling will allow us to create even more value from this business going into the 2020s. We'll talk about that more at Management Day in June as well.

In terms of the dividend increase question, I get it. And what I would say is a couple of things. First of all, again, this will be an important part of the engagement that we'll have at Management Day in June. We recognize this is a really important part of the story for investors to have a sense of what we're thinking and how in our strategy with respect to shareholder distributions going into 2020s. So I'd say that's going to be a core piece of that engagement.

What I'd share now is a couple of things. Hopefully, everyone has seen our commitment to increasing shareholder distributions, turning off the script, starting the share buyback program and then the share volume, the shareholder distributions that we've been able to achieve, again highest in the sector. And of course, we increased our share buyback from $2.5 billion to $2.75 billion in terms of the mandate this quarter, which is another signal in terms of confidence in our underlying cash generation and our commitment to the overall program.

So the commitment to the shareholder distributions and increasing shareholder distributions, I hope is clear. I would also say that through time to deliver on our world-class investment case and achieve number one total shareholder return, increasing dividends and ensuring dividend per share increases through time needs to be a part of that story. And so, I recognize that needs to be a part of it.

Today where we sit, we're the largest dividend payer in the world. We've got clear commitments on the share buybacks. Our dividend yield is around 6%. All of those things, I think, point to the right strategy today, which is focusing on the share buybacks. But at some point in time, increasing share -- dividends per share will need to be a part of the story.

Jon Rigby -- UBS -- Analyst

Great. Thank you.

Jessica Uhl -- Chief Financial Officer

Thank you.

Operator

Our next question is from Lucas Herrmann of Deutsche Bank. Please go ahead. Your line is open.

Lucas Herrmann -- Deutsche Bank -- Analyst

Yeah. Thanks very much. And Jessica, and I have a chance to talk to you. One straightforward question and one more of view, maybe a little more conceptual. But straightforward is just on the Gulf of Mexico production this quarter relative to a year ago, could you just give us an indication, what the absolute numbers were?

And the second is, there's been a lot of debate around shale oil on growth capital investment and reserves and reserve replacement ratios et cetera in terms of years. I don't really want to get into that debate, but I do want to think a little bit more about or get some commentary from you, Jessica on bookings. The observation very simply is this. If I look back at or if I look at your reserve bookings 2017 and look at the assets that you sold or the resources that you sold to Chrysaor. You sold from memory, about 120,000 barrels a day of North Sea production and you deconsolidated just under 90 million barrels of reserves, which would imply 120,000 a day is broadly 45 million -- 40 million. 45 million barrels or so a year of production, it implies, but the reserve life is around two years.

Chrysaor indicated they bought 350 million barrels a day of 2P reserves. Clearly, the two numbers 1P, 2P it's their interpretation for a long way apart. The reason for the question is, it's not the absolute number, it's more conceptual. And to what -- I think you're a company that's very conservative around bookings. But there's a point of which conservatism around bookings actually starts to play on shareholder value and to play on perception of a company, which need not necessarily be fair. And I just wondered, why it is that Shell should appear to be so conservative at times around the booking of resource, if that interpretation of UK numbers, and I could use other examples, is appropriate. So your view based in essence on the booking policies you adopt, and whether actually they end up being value and shareholder destructive through giving a false impression of the resilience and the resource depth of your Company?

Jessica Uhl -- Chief Financial Officer

Great. Thank you, Lucas.

Lucas Herrmann -- Deutsche Bank -- Analyst

Too long. Sorry, Jessica.

Jessica Uhl -- Chief Financial Officer

No. That's good. So in terms of Gulf of Mexico, the quids question on production levels. The numbers that I had that my team is giving me the exact numbers. The numbers I had is, the Gulf of Mexico has gone from -- sorry that's the deepwater business in total. That was 400 to 883, you are all of North America though, not just Gulf of Mexico. So Gulf -- let us come back to you on the quids question because I've got various numbers here. Gulf of Mexico some 370,000 barrels a day today. And we'll come back to you in terms of what the growth has been over the last couple of years. I don't have that at my fingertips.

Lucas Herrmann -- Deutsche Bank -- Analyst

Okay.

Jessica Uhl -- Chief Financial Officer

In terms of reserves bookings and our philosophy, there's a couple points to make there. The first one is, we're really trying to get as much focus on the cash generation of the Company as possible because that is such a strong indication of the value characteristics of the assets and the portfolio that we have. And once again, shifting from low value barrels, potentially in the Middle East to barrels in Brazil and Gulf of Mexico, you can get exponentially more value from those positions. And we have made a very conscious strategic and portfolio choice over the last couple of years to reposition our portfolio in those higher-value positions of the upstream sector. So that's the first thing.

And so in that sense, the reserves and production numbers are secondary to what is the right value choice and how do you maximize the most cash and the most value from a given dollar of capital or given dollar of OpEx you need to spend. And that's really what's driven the portfolio choices. And I'm hoping that as you see this cash grow in our Upstream business, some 45% over the last year and again there are some pieces that also coming through in our IG business as well because we've got gas production in IG. Again I'm hoping that as this growth is coming through, people say OK, well perhaps the 1P reserves are relatively low, but my goodness year-on-year as the Company keeps growing, their cash flows in their Upstream IG business. And that again is a reflection of our value-over-volume philosophy.

Conservative or not, we like to do things appropriately. That's what we need to do. We need to follow the law and we need to follow the SEC rules. And that's what we do. And I think it would be potentially and possibly inappropriate, if we are overly conservative. What we're supposed to do is accurately represent the reserves as following the regulations and the guidelines. It may be that our perspective on certain assumptions and things like that are relatively more conservative. That's possible.

I think the only way we can really win this discussion though Lucas is to get people confident in our portfolio, get people confident in the cash generation, have people spend a bit of time understanding the SEC rules relative to the nature of our Company and on what basis should you be anticipating cash flow growth. And this is where the proved undeveloped resource methodology for the SEC doesn't fit well with our Brazil, Gulf of Mexico and Integrated Gas businesses.

And we've got some materials on that. We've been spending a lot of time with investors and analysts to get to increase that knowledge and that understanding. So people have confidence in what we're doing as a company strategically and to help them better understand what the cash is going to look like going into the 2020s, where I have confidence that we'll continue to grow the cash flow of our business based on the portfolio that we have and the access to resources that we have today. Thank you.

Operator

We will now take our next question from Alastair Syme of Citi. Please go ahead. Your line is open.

Alastair Syme -- Citi -- Analyst

Hi, Jessica. Coming back to the comments you made on acquisitions a while ago. You said anything will have to sit within your financial framework. So I just wanted to confirm what you meant by that. Does it mean what you said in the past that the $30 billion CapEx viewing includes gross acquisitions? It's not net of any disposals? Is that the right way to think about it?

My follow-up. In your introductory remarks, you pointed out Shell's cash flow is the highest in the peer group, but it's also true that your ratio of CapEx -- and I'm not sure here so the total capital investment on the ratio of CapEx to cash flows is by somewhere the lowest in the sector. One explanation could be that your dollars go a lot further than peers, but that's not really borne out on the return on capital. So how do you think that we should interpret that spending ratio?

Jessica Uhl -- Chief Financial Officer

Great. Thank you, Alastair. Indeed, I want to reiterate our commitment to the financial framework as we've laid it out. And looking at and achieving the cash flow levels, the gearing levels importantly that we've laid out by the end of 2020. And anything we would do needs to fit within our overall financial framework. Anything that we do needs to have the right value characteristics. And we would not go gently into any significant transaction without ensuring we're doing the right thing from a financial framework perspective and also from a value perspective.

From a cash flow versus CapEx, I think what we've demonstrated over the last couple of years, if you look at our CapEx level and you look at the cash flow growth that we've achieved, I think there's a very strong case that we've materially increased our capital efficiency and have perhaps the most competitive capital efficiency in the sector. And from ROACE perspective, we've been improving that quarter on -- quarter in, quarter out. And this quarter, we're at the top of the ROACE chart. So I think we are demonstrating competitive leading returns at this point as a company and the level of cash flow that we've increased against our capital profile, I think is a good proof point that we are getting more for our dollar and continue to grow our cash flow significantly with the current CapEx range that we have in place. Thank you.

Alastair Syme -- Citi -- Analyst

Can I just come back on the first answer? So you referenced achieving cash flow levels and gearing levels. I think in response to this question in the past, you've referenced the CapEx ceiling. Is that not the right way to think about it any longer?

Jessica Uhl -- Chief Financial Officer

The capital ceiling has been -- it's important for us. The $25 billion to $30 billion range has been important for us. We have indicated this includes inorganic spend as well. This is an important part of driving capital discipline in the Company and it is an important measure for us in terms of how we're managing investment and it's part of managing our financial framework.

Alastair Syme -- Citi -- Analyst

Great. Thank you.

Operator

We will now take our next question from Henry Tarr of Berenberg. Please go ahead. Your line is open.

Henry Tarr -- Berenberg -- Analyst

Hi and thanks for taking my questions. Just two quick ones. One, an update on Prelude with -- still waiting, I guess for the first cargo of LNG. Usually this is going to be in 2Q, but how is that project coming on? And then secondly, South America delivered pretty strong results in Q1. A strong turnaround against Q4. I guess you have the FPSOs ramping up in Brazil. But just from a peer -- sort of volume perspective, it wasn't a huge increase QonQ. But is that the key driver? Or is there something else also happening in Brazil to improve profitability Upstream? Thanks

Jessica Uhl -- Chief Financial Officer

Great. Thank you, Henry. Prelude, we are actively starting up the assets. Our priority is to ensure a safe and robust start-up process. It's been really important for us to not put pressure on the team because safety is paramount. And of course, this is a large sophisticated asset that we hope will generate significant cash for the coming decades. And so a day or a week or even a month here or there at this moment in time is not really what we're focusing on, but ensuring that each step of the process, we bring the right expertise and professionalism to play to ensure that we start that asset up.

And we're hoping to have our first LNG cargo in the second quarter. We're really in the middle of the start-up. I think the normal challenges of any start-up of an asset of this size and again what we're trying to do is just really manage it at the right pace and not create any pressure from a time perspective because I think start-up is imminent and again it's more about doing it appropriately rather than quickly.

For South America, the main driver is the continued ramp-up of assets in Brazil. So there's nothing other mysterious going on or other structural change in the business to point to. It's simply the performance of our South America business primarily driven by our Brazil Deepwater operations. Thank you.

Henry Tarr -- Berenberg -- Analyst

Great. Thanks.

Operator

We will now take our next question from Jason Gabelman of Cowen. Please go ahead. Your line is open.

Jason Gabelman -- Cowen -- Analyst

Hey, thanks for taking the question. I wanted to ask the capital framework question relative to M&A in a bit of a different way. I appreciate you have that $30 billion ceiling. But within that kind of $25 billion to $30 billion framework, does that contemplate in acquisition funded by cash? Would it be cash and debt being taken in? Or would it also potentially include some sort of equity that would be issued for an M&A? I mean asked another way, does that $30 billion CapEx ceiling account for the entire enterprise value of a potential acquisition? Thanks.

Jessica Uhl -- Chief Financial Officer

Jason, thank you for the question. And I appreciate the heightened level of interest of potential acquisitions in the shale space given all the activity. At this point in time, I really don't want to signal anything with respect to appetites, nor potential structures. Anything would be speculative and not necessarily helpful. If anything arises at the right moment in time, we will let you know. I think the important thing is to signal that we -- as I said, we're committed to our financial framework. We've got the right portfolio today. We don't need to do M&A. If we do it, it will be value accretive and it will be within the context of our financial framework. Thank you.

Jason Gabelman -- Cowen -- Analyst

All right. Let me then shift to the Downstream segment. A topic that hasn't been touched upon is the Russia pipeline contamination. I'm just wondering if you see increased feedstock costs into your Germany plants and any outlook on when the issue there is expected to be resolved? Thanks

Jessica Uhl -- Chief Financial Officer

Sorry. I was just trying to make sure I understood the question, Jason. And on Russian matters, I'm -- as an American, I'm recused from engaging some just contemplating reserves -- a simple question -- a response I can give and I -- in general, it's probably best for me not to provide any responses in relation to Russia. So I'll have the IR team get back to you.

Jason Gabelman -- Cowen -- Analyst

Okay. Thanks.

Operator

We will now take our next question from Michele Della Vigna of Goldman Sachs. Please go ahead. Your line is open.

Michele Della Vigna -- Goldman Sachs -- Analyst

Hi, Jessica, it's Michele. And congratulations on a strong quarter. A quick question from me. In Nigeria, we're now over two months after the presidential elections. I was wondering if you see things moving there and if we could expect an FID on Bonga South West or Nigeria LNG 27 this year?

Jessica Uhl -- Chief Financial Officer

Thank you, Michele. I'd say overall in Nigeria, our business is progressing well. There's always a certain amount of challenge with any of our business and our business in Nigeria, in particular. But we've worked through a number of those. There's important extensions for licenses that happened at the end of last year and we're continuing to put -- we've put a number of funding structures in place in the last year to stabilize the relationship with the government and the way funding was happening for the assets.

So overall the trend has been in the right direction with the business. And as you say, things do settle down post the election, which is helpful. The projects you referenced are being actively managed and are important parts of our funnel both NLNG and in Bonga South West. But at this moment in time, I would not want to signal in terms of expected FID timing. So they're important parts of our portfolio. They're being worked, but I can't provide any indication of when a potential FID may occur. Thank you.

Operator

We will now take our last question from Christopher Kuplent of Bank of America. Please go ahead. Your line is open

Christopher Kuplent -- Bank of America -- Analyst

Thank you very much. Jessica, I'll try and be quick. Just on Q1, and I think you tried to give us a little bit of an indication earlier. But I just wanted to see whether you can go into more detail on the rationale behind increasing that share buyback tranche to $2.75 billion . Is it a reaction to the fact that the $2.5 billion maximum in the last tranche wasn't fully utilized? Or is it as you seem to indicate simply signaling of increased confidence in your overall financial framework? That will be question number one.

And question number two is, firstly just quickly looking for confirmation. We've got the detail in Q1 of additional derivatives margin and cash outflows. You mentioned the amount of tax payment. Is there anything that is you would call a non-recurring positive that has actually lowered cash tax payments elsewhere? Any additional items that we should consider here as non-recurring in the cash flow statement would be great. Thank you.

Jessica Uhl -- Chief Financial Officer

Great. Thank you Chris for that. On your last question, no. So because I put that list together myself and I had more upside rather than downside. Again I'm not trying to signal things here, but you've touched on the things that would be potentially a positive implication. But from an upside rather in terms of positive one-offs that's material, nothing comes to mind to signal to you. In terms of the share buyback, I'd say it's both. So it's one trying to make sure we maintain the right level of buybacks and to get to the full 25 by the end of 2020. But of course, we only do that when we have confidence in our underlying cash flow. So it's a reflection also of the strengths of our delivery in Q1 and our confidence in delivery going forward. Thank you.

Christopher Kuplent -- Bank of America -- Analyst

All right. Thanks.

Operator

Unfortunately, that is all the time we have for today's questions and I will now hand back the call to Jessica Uhl.

Jessica Uhl -- Chief Financial Officer

Great. Thank you everyone for your questions and for joining the call today. A few reminders. Our Annual General Meeting is on the 21st of May 2019. I look forward to talking to you, along with Ben and the rest of the Executive Committee further at our Management Day in 2019 on the 4th of June in London and on the 5th of June in New York. The second quarter results is scheduled to be announced on the 1st of August 2019 and Ben and I will talk to you all then. Thanks very much and have a good day.

Operator

Ladies and gentlemen, this concludes the call. Thank you for your participation. You may now disconnect.

Duration: 87 minutes

Call participants:

Jessica Uhl -- Chief Financial Officer

Oswald Clint -- Bernstein -- Analyst

Lydia Rainforth -- Barclays -- Analyst

Thomas Adolff -- Credit Suisse -- Analyst

Christyan Malek -- JPMorgan -- Analyst

Biraj Borkhataria -- RBC -- Analyst

Roger Read -- Wells Fargo -- Analyst

Jason Gammel -- Jefferies -- Analyst

Jason Kenney -- Santander -- Analyst

Martijn Rats -- Morgan Stanley -- Analyst

Irene Himona -- SocGen -- Analyst

Jon Rigby -- UBS -- Analyst

Lucas Herrmann -- Deutsche Bank -- Analyst

Alastair Syme -- Citi -- Analyst

Henry Tarr -- Berenberg -- Analyst

Jason Gabelman -- Cowen -- Analyst

Michele Della Vigna -- Goldman Sachs -- Analyst

Christopher Kuplent -- Bank of America -- Analyst

More RDS analysis

Transcript powered by AlphaStreet

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.